THE demand for mass-market flats has fallen sharply this year and is putting increasing pressure on prices, says OCBC Investment Research.
It forecasts that prices could fall up to 15 per cent over the next two years while sales of new homes will stay muted next year.
The numbers from this year point to the gloom ahead.
There were only 6,800 private homes sold – excluding landed properties and executive condominium units – in the 10 months to Oct 31, half the level of the same period last year, says OCBC Investment Research analyst Eli Lee, adding that the pain is especially acute in the mass-market segment.
“Mass-market home sales routinely made up the bulk of the total market volume – 69 per cent of total sales over January 2012 to June 2013. As we entered the bear market in the second half of 2013, the dominance of the segment waned and constituted 51 per cent of total sales over July 2013 to date.”
High-end sales “spiked” in October from September, thanks to the launch of Marina One Residences, which sold 335 units over the month at a median price of $2,228 per sq ft, notes Mr Lee.
He expects demand for shoebox apartments – units up to 506 sq ft – to be more at risk than larger homes due to the “untested rental market for the large supply of shoebox units that will be completed next year”.
The prevailing rents for shoebox units may have been skewed upwards as the smaller completed supply means the market has not really been tested yet.
Mr Lee also notes that 84 per cent of the 12,000 shoebox units sold since 2009 are outside the city centre, so “their capital values could come under pressure if rental yields decline significantly below current expectations”.
OCBC Investment Research also tips new home sales to stay soft at between 8,000 and 10,000 units next year.
While some in the industry hope that cooling measures like stamp duties will be reviewed, OCBC expects that will happen only “when residential price declines approach a meaningful threshold of 10 per cent”.
Deputy Prime Minister Tharman Shanmugaratnam said in a speech in October that private property prices still have “some distance to go in achieving a meaningful correction after the sharp run-up in prices in recent years”.
This could happen in the second half of next year or later, said the OCBC report.
It also prefers large developers with strong balance sheets, a diversified regional presence and portfolios with significant investment asset exposures.